Essay question

With reference to case law, identify the principles underlying the courts’ assessment of damages. In particular, critically assess the application of remoteness of damage and how it controls the award of expectation losses.

Answer:

•   Any breach of contract entitles the injured party to damages. The purpose of damages is not to punish the transgressor, or put the injured party in a better financial position than they would have achieved through the completion of the contract.

•   They are used to either place the injured party in the position they would have been had the contract been completed (expectation losses); or place the injured party in the position they were before the contract had begun (reliance losses).

In order for the courts to assess damages, there are underlying principles that must be adhered to, to ensure fairness. These are:

•   The damages must not be too remote;

•   They must be quantifiable by the court;

•   They must be recognised as damages in English law; and

•   The injured party must have sought to mitigate their losses as far as is reasonable.

Remoteness is a vital aspect of the contract as it provides that the defendant in the case will not be liable for damages that are deemed too remote. It is assessed at the time of establishing the contract, rather than when the breach occurred (Jackson v Royal Bank of Scotland Plc). Also consider that in The Golden Victory (Golden Strait Corporation v Nippon Yusen Kubishka Kaisha) the House of Lords held that as opposed to only assessing damages at the time of the breach, a more accurate assessment could be achieved along the lines of ‘fair compensation.’ Hence the assessment of damages was altered from the ‘traditional’ approach.

Consider the judgments in Hadley v Baxendale; Victoria Laundry v Newman Industries; and the issue of ‘reasonable expectation’ in Koufos v C. Czarnikow Ltd (The Heron II).